Collecting Social Security at age 62 is the best decision, here is why:

[RunningBum]

I rather doubt I have anything else to add to this thread, but it is an area of interest to me (and obviously to a lot of people here) -- so I do want to share my own perceptions.

I'm still working, age 57 (sort of caught in the one more year loop unfortunately), and request my social security statement every year in late spring when -- hopefully -- the previous year's contributions are finally showing up.

I have my own excel spreadsheet set up, and I've reviewed the scenarios multiple times -- most recently a few minutes ago -- to see if I'm missing something. My conclusion is always the same. In comparison to starting to take payments at age 62, my breakeven year from starting at age 67 (my FRA) would be age 79. At age 70, breakeven becomes age 81. Given that the social security estimates presume employment until starting to take payments makes these breakeven points all the more interesting to me -- that is working longer does not seem to improve the math a lot. I would have thought -- or hoped -- that working until age 70 would make breakeven with a starting payments at age 62 scenario occur much more quickly.

Working longer will not, cannot, move the breakeven point. Whether you get $100 or $30,000 at FRA, the breakeven point is the same because taking early or late works on percentages. What working longer can do is make your benefit larger, but especially once you have 35 years of wages, the difference gets pretty small. And if your next year of income isn't larger than one of those 35 years in the bank, it does nothing for you.

So anyway, I find myself more in the camp of the OP -- especially since longevity does not seem to be a strong point of men in my family. Speaking of, I know that many here seem to view social security as a type of longevity insurance, without a lot of concern that they might not ever receive as much as they've contributed over the years. I don't know that I could ever reach the point of that way of thinking. I would have to have significantly more assets that I do now, and my blue collar family roots pretty much instilled the idea of social security being a promise of some retirement income.

Good thoughts and good discussion here.

IMO you should look at optimizing your SS benefit--whatever that means to you--rather than worrying about trying to get your money back. There are plenty of good reasons to take it early, but trying to make sure you get what you put in does not strike me as one of them. If your longevity outlook was longer, you'd be shooting yourself in the foot because in taking it early to best ensure you get your money back, you'd be getting less in the long run if you do live past the breakeven. I view SS mostly as longevity insurance with the goal of beating the system and living longer to get as much out of it as I can. What I put into SS is long gone and doesn't play into my decision at all.

 

[teejayevans]

always an interesting discussion. I have run SS analyze with multiple scenarios ever since I found the info on this forum. The end result (total lifetime income I think, if I am understanding correctly) is about 200,000 difference between age 62 and 70, if I recall from last run. I thought it would be a greater amount, not sure if it is because DH and I are same age and earned about the same income or the fact that we have cola'd pensions that pretty much covers our expenses.
Still on the fence when to apply for sure, feel blessed to be in this position.

Then split the difference, take it at 65, at least then you get the added benefit of the hold harmless provision.

 

[davismills]

I've heard so many strategies on SS that sometimes I just want to file now and take the money and run. I don't need it yet, so I continue to delay.

I think all the strategies amount to a big ass crap shoot that won't amount to much no matter how many Excel calculations are lobbed at it.

 

[tmm99]

Most likely we will see a tax scheme to take away SS benefits from higher income people. Like ER forum folk.

That's what I am thinking too. At least, the would be the first phase.

 

[Clone]

Anyone have a link with a decent explanation of how the "bends" work?

https://www.ssa.gov/oact/cola/piaformula.html

Here is a good step-by-step example of how the calculations work. If you create a spreadsheet that you populate from your SSA record, and update the indexing factors, you can calculate what your average indexed monthly earnings (AIME) is.

Then using the bend formula, you can calculate the expected payment. Understand that the numbers will change as the indexing factors change, and if you have earnings that replace the lowest (#35) that will increase the AIME.

https://www.thebalance.com/social-security-benefits-calculation-guide-2388927

I would have thought -- or hoped -- that working until age 70 would make breakeven with a starting payments at age 62 scenario occur much more quickly.

As RB said- only if the additional year of earnings exceeds your 35th highest amount. In my case- here is what those last years look like (These numbers are a bit dated, I actually put up a few more years after this calculation was done.) :

34 1999 90418

35 1992 87855

36 1979 80304

37 1978 17273

If I were to work one more year and put up 117,000 SS income in place of that 87855 number, the actual SS payment would go up $10 per month. Once you have 35 good years of earnings on the record, more years will barely move the needle.

What if I have a zero in that top 35 years? If I replace that 87855 with a zero, my payment would drop $32 per month ($384 per year). 5 years of zeros would drop the monthly payment by $164 (almost $2000 per year). So it is somewhat important to have 35 years, but more than that may not be a significant improvement.

 

[marko]

. My goal is to decrease my tax deferred money to a point where RMDs won't (by themselves) cause us to be in a high bracket. We may even get to a point where we can pay 0% taxes or close to it.

Many folks, myself included, find that their RMD will be about the same as their normal withdrawals.

 

[RunningBum]

Many folks, myself included, find that their RMD will be about the same as their normal withdrawals.

Sure, but wouldn't it be better to move some of that tax deferred money over to a Roth if you have room in a lower tax bracket before you get to the age where you start taking income like SS and pensions? That way you can make at least some of those withdrawals tax free from a Roth in the later years.

 

[WestUniversity]

In October 2012, I turned 62 years old and had just been fired from my job. The last few years were hell. My bosses had done everything that they could to make my life miserable and get me to quit. I refused to quit because I was told by experts that I should work until I was 67, close to my regular retirement age to get full Social Security benefits. Well on my 62nd birthday- of all days- I was formally fired.

One side of me wanted to get right back on the rat race but another said it was time to call it a day and a career and retire and go on Social Security. (Early benefits at age 62) My friends and financial planner kept telling me that if I waited until 67 (or 70) I could get more money. But I kept telling them I did not have enough savings to stop work and not collect Social Security. Assuming a 4% average annual withdrawal from my $700,000 in savings and investments, I would need to collect both Social Security and take the annual 4% withdrawals to pay my living expenses.

So after much thought, I decided to retire and start collecting benefits and do the annual withdrawals.

Now 5 years later, I have done significant analysis and have determined that I will have more money up to my late 80s because I started to collect SS benefits at age 62 vs waiting until I was 67 years old. Here are the details:

On a 60/40 Stock Bond portfolio my $700,000 nest egg in October 2012, the month I turned 62 and was fired, with annual 4% withdrawals is now worth $1,036,551 today.

IF I would have waited to collect SS until I was 67 and have pulled out an additional $1300 a month out of the $700K to cover the lost Social Security benefits, above and beyond the 4%, to cover my expenses, I would have $933,638.00 today. ($102,913.00 less)

Yes, I would be getting $600 a month more in SS if I waited until I was 67 to collect. But it would take me 15 years to break even assuming no investment return from the additional $102,913. If I could get a 5% return going forward with my extra money, it would be 18 years before I broke even.

Yes, this all shows that unless you live well into your late 80s, it is better to collect your SS benefits at age 62 if you are not working.

I did the same type of analysis and came up with similar results. At about 78, the total payments received whether starting SS at 62 or FRA or 70 are about the same.

Projecting out to 95 (the most optimistic of my life expectancy projections) taking my social security payments at 70 does yield a larger total over that 25-year period than starting SS at 62 by far.

HOWEVER, the loss of the compounding of my investments from taking the larger withdrawals from 62 to 70 far exceeds the pickup from delaying SS payments until 70. I will most likely take my SS at 62...

 

[Turboslacker]

I would prefer to take SS before 62. Seriously though, I'm joining the 62 club.

 

[Running_Man]

The reason is by delaying SS till 70, you get a return on your SS...7+%, then you assume you made nothing on your investments.
So delaying SS wins, now assume it was a bull market instead of flat(15%), by taking SS earlier, giving up the 7+%, you got 15% return...would have been better to take it at 62.

Y'all do the same things pundits do...make assumptions...if change the assumptions, you change results.
You allow me to make the assumptions I can prove any strategy was brilliant or stupid.

You do not “Make” or “earn” 7 percent by deferring Social Security, you increase payments in a future time by an average of about 6.8% compounded annually. What percentage you make on deferring SS to age 70 and how much you make and whether 62/70 is better is totally unknowable as to how long you live and portfolio performance between 62 and 70.

Actually if the stock market made 7 percent over inflation annually from age 62 to age 70 and you only earn the inflation rate thereafter, by age 95 SS would have returned 1.5% on your deferred spending - - after inflation. And if you die before age 87 you would lose money on deferring SS based on relative size of your remaining portfolio’s. At a 3.5 percent return on the extra funds that earned 7 percent from taking SS at age 62 you would be over 100 before SS would overtake the age 62 claiming of SS. It really does not take much for age 62 claiming to work out better.

However there is a comfort to be had in protecting minds that are more susceptible to scams by relying more on SS in my opinion that makes it worthwhile, but I think on a strict financial basis actual results are too hard to estimate for anything to be accurate

 

[davismills]

I started contributing to SS at the tender age of 14.

I sure wish I would have had my hands on the money that I contributed over a total of 44 years. The government just lost money on it all those years.

 

[mathjak107]

Then split the difference, take it at 65, at least then you get the added benefit of the hold harmless provision.

that is what i did . we did it for a few reasons .

i was working a day a week and made to much pre fra to file ,but in the year coming up i will be fra .different rules apply so i can earn up to 45k .

my wife did not get a 4k spousal adder until i filed so delaying would have cost us not only invested assets we are spending down , checks i gave up but a 4k spousal to for each year more we delayed .

 

[mathjak107]

You do not “Make” or “earn” 7 percent by deferring Social Security, you increase payments in a future time by an average of about 6.8% compounded annually. What percentage you make on deferring SS to age 70 and how much you make and whether 62/70 is better is totally unknowable as to how long you live and portfolio performance between 62 and 70.

Actually if the stock market made 7 percent over inflation annually from age 62 to age 70 and you only earn the inflation rate thereafter, by age 95 SS would have returned 1.5% on your deferred spending - - after inflation. And if you die before age 87 you would lose money on deferring SS based on relative size of your remaining portfolio’s. At a 3.5 percent return on the extra funds that earned 7 percent from taking SS at age 62 you would be over 100 before SS would overtake the age 62 claiming of SS. It really does not take much for age 62 claiming to work out better.

However there is a comfort to be had in protecting minds that are more susceptible to scams by relying more on SS in my opinion that makes it worthwhile, but I think on a strict financial basis actual results are too hard to estimate for anything to be accurate

people get roi and the ss increases confused all the time .

actually if you live to 90 roi is pretty good delaying . after inflation you can clear about 5% which is just about what a balanced fund would return only this is from what amounts to a gov't bond .


michael kitces

 

[mathjak107]

I rather doubt I have anything else to add to this thread, but it is an area of interest to me (and obviously to a lot of people here) -- so I do want to share my own perceptions.

I'm still working, age 57 (sort of caught in the one more year loop unfortunately), and request my social security statement every year in late spring when -- hopefully -- the previous year's contributions are finally showing up.

I have my own excel spreadsheet set up, and I've reviewed the scenarios multiple times -- most recently a few minutes ago -- to see if I'm missing something. My conclusion is always the same. In comparison to starting to take payments at age 62, my breakeven year from starting at age 67 (my FRA) would be age 79. At age 70, breakeven becomes age 81. Given that the social security estimates presume employment until starting to take payments makes these breakeven points all the more interesting to me -- that is working longer does not seem to improve the math a lot. I would have thought -- or hoped -- that working until age 70 would make breakeven with a starting payments at age 62 scenario occur much more quickly.

So anyway, I find myself more in the camp of the OP -- especially since longevity does not seem to be a strong point of men in my family. Speaking of, I know that many here seem to view social security as a type of longevity insurance, without a lot of concern that they might not ever receive as much as they've contributed over the years. I don't know that I could ever reach the point of that way of thinking. I would have to have significantly more assets that I do now, and my blue collar family roots pretty much instilled the idea of social security being a promise of some retirement income.

Good thoughts and good discussion here.

if we figure checks given up and spending down a balanced fund to delay ,break even can run 22 years .

that is about 84

michael kitces

 

[HadEnuff]

people get roi and the ss increases confused all the time .

actually if you live to 90 roi is pretty good delaying . after inflation you can clear about 5% which is just about what a balanced fund would return only this is from what amounts to a gov't bond .


michael kitces

I need some explanation of this graph. What is "IRR", and what exactly is plotted on the x and y axes?

 

[mathjak107]

internal rate of return on ss based on years

vertical scale is the after inflation adjusted return and the horizontal , the number of years to get there .

so a 5% real return will take 28 years which is roughly age 90. zero roi takes almost 19 years so that is about age 82 or so not counting any spousal adders .

but this does not include spending down invested assets while delaying which pushes things out to about 22 years .

the other chart reflects that case .

 

[HadEnuff]

internal rate of return on ss based on years

vertical scale is the after inflation adjusted return and the horizontal , the number of years to get there .

so a 5% real return will take 28 years which is roughly age 90. zero roi takes almost 19 years so that is about age 82 or so not counting any spousal adders .

but this does not include spending down invested assets while delaying which pushes things out to about 22 years .

the other chart reflects that case .

So, is the vertical axis the after inflation adjusted return of the money you are spending (not investing) because you are denying yourself the SS benefit?

 

[mathjak107]

not in that chart you referenced . the other chart accounts for spending down invested assets because you are not getting checks . i posted that chart again below .

that assumes no checks coming in and you need money to live on .

 

[mathjak107]

this accounts for spending down invested assets to live on while delaying .

 

[HadEnuff]

Going back to the first graph, the "vertical scale is the after inflation adjusted return ".

Of what?

 

[mathjak107]

Calculating The Benefit Of Delaying Social Security
To value the trade-off of delaying Social Security – no benefits paid now, in exchange for incrementally higher benefits in the future – we must calculate the economic value of the exchange. Accordingly, the chart below shows the impact over time of not receiving $750/month (increasing annually for inflation) from age 62 to 70, which then begins to be offset by the higher (inflation-adjusted) payment stream that begins at age 70 itself. Since benefits not paid from age 62 to 70 represents a foregone investment opportunity (either the money could have been invested if it wasn’t needed, or it could have been consumed and thereby allowed other assets to remain invested), we must account for not only the $750/month (at age 62) versus $1,320/month (at age 70) benefits, but also for inflation itself (assumed here to be 3%) and this time-value-of-money factor (projected at 6%, a “balanced” portfolio rate of return that could have been earned on the money invested or not-consumed).


it is easier to just let you read the link

https://www.kitces.com/blog/how-del...ong-term-investment-or-annuity-money-can-buy/

 

[HadEnuff]

Thanks mathjak. Unfortunately, you now have a small taste of what my father went through when he was my Calculus tutor.

 

[mathjak107]

that is okay , questions help us all learn

 

[audreyh1]

True, but when the Dr. gives you bad news, you better sign up quick...

Unless you wanted to preserve higher benefits for surviving spouse.

 

[audreyh1]

I was thinking this also....

Remember when we got 2% off our SS payments a few years back? I wonder if that reduction was to the SS fund or if the general fund 'paid' the SS fund for that credit?

I think this hurt the SS fund?